Fitch Affirms Sweden at 'AAA'; Outlook Stable

LONDON, January 10 (Fitch) Fitch Ratings has affirmed Sweden's
Long-term foreign
and local currency Issuer Default Ratings (IDR) at 'AAA' with
Stable Outlooks.
The issue ratings on Sweden's senior unsecured foreign and local
currency bonds
have also been affirmed at 'AAA'. The Country Ceiling has been
affirmed at 'AAA'
and the Short-term foreign currency IDR at 'F1+'.
KEY RATING DRIVERS
Sweden's 'AAA' ratings reflect its high governance and human
development
indicators, high income per capita, and track record of sound
macroeconomic
policy implementation.
Public finances are a rating strength, underpinned by a strong
fiscal framework.
Sweden's gross general government debt, estimated to be just
over 42% of GDP in
2013, is lower than the 'AAA' median of 46.7%, allowing it some
discretion to
implement a mildly expansionary fiscal policy to support growth.
The budget for
2014 includes discretionary tax cuts worth around SEK20bn
taking the general government deficit to 1.6% of GDP from an
estimated 1.3% in
2013. The authorities envisage that the budget will be in
balance by 2016.
Fitch estimates that real GDP growth in 2013 was 0.9%. Strong
domestic demand
over the next two years is expected to translate into a pick-up
in GDP growth to
2.3% in 2014 and 3.5% in 2015. Exports are also expected to
rebound as growth
prospects in Sweden's main trading partners improve, and the
current account
surplus is likely to remain around 5%-6% of GDP.
The Swedish banking sector is large relative to the size of the
economy, with
assets around four times GDP. Risks to the sector are balanced.
Major Swedish
banks are well-capitalised and already meet the common equity
Tier 1 capital
ratios of 12% required by 2015. However, the banking system
remains heavily
reliant on wholesale funding, much of it in foreign currency,
leaving it
vulnerable to shocks in market funding conditions. Loan to
deposit ratios for
major banks are among the highest in comparison with other major
European banks.
Higher international reserves, up by 26% in 2013 to USD66bn,
help mitigate
financial sector risks.
Household indebtedness is sizeable from both a historical and an
international
perspective. In mid-2013, household debt was around 170% of
disposable income.
The Swedish mortgage market is also characterised by a large
stock of
non-amortising mortgages. The Swedish authorities have
introduced a number of
measures designed to reduce risks to the macroeconomy and
financial stability
arising from household debt. However, in a context of rising
house prices, it
could take some years for the debt to income ratio to stabilise.
RATING SENSITIVITIES
The Outlook is Stable. Consequently, Fitch does not currently
anticipate
developments with a high likelihood of leading to a rating
change. However,
future developments that could, individually or collectively,
result in downward
pressure on the ratings include:
-A sharp downward correction of house prices could lead to a
degree of
retrenchment on the part of more leveraged households. This
could translate into
higher savings, falls in private consumption, and losses on
banks' corporate and
household loan books, straining economic and financial
stability.
-A systemic shock to funding conditions in the financial system
could translate
into pressure on the sovereign rating, given the relative size
of the banking
sector.
KEY ASSUMPTIONS
Fitch assumes that the Swedish authorities remain committed to
the current
fiscal policy framework, notwithstanding parliamentary elections
scheduled for
later this year. The government debt to GDP ratio is expected to
peak at 42.9%
this year, before falling back to 41.5% in 2015.
In its debt sensitivity analysis, Fitch assumes a primary
balance of 0.4% of
GDP, trend GDP growth of 3.0%, GDP deflator growth of 1.7%, and
a nominal
effective interest rate of around 2.4%. Under these assumptions,
gross
government debt as a share of GDP would decline to 31.2% of GDP
by 2023. In a
growth stress scenario, where real GDP growth is on average just
1.3% over the
next ten years, the debt to GDP ratio would only fall back by
around 7pp by
2023, to 36.8% of GDP.
Fitch assumes that the risk of fragmentation of the eurozone
remains low.
Contact:
Primary Analyst
Alex Muscatelli
Director
+44 20 3530 1695
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Secondary Analyst
Kit Ling Yeung
Analyst
+44 20 3530 1527
Committee Chairperson
Paul Rawkins
Senior Director
+44 20 3530 1046
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530
1103, Email:
peter.fitzpatrick@fitchratings.com; Hannah Huntly, London, Tel:
+44 20 3530
1153, Email: hannah.huntly@fitchratings.com.
Additional information is available on www.fitchratings.com
Applicable criteria, 'Sovereign Rating Criteria' dated 13 August
2012 and
'Country Ceilings' dated 09 August 2013, are available at
www.fitchratings.com.
Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS
LINK:
here. IN ADDITION,
RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE
ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS,
CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S
CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE
FIREWALL, COMPLIANCE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE
FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES.
DETAILS OF THIS
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH
WEBSITE.

Next In Bonds News

WASHINGTON, Dec 9 The U.S. Senate passed
legislation on Friday to fund the government through April and
sent it to President Barack Obama for signing into law, after
Democrats who sought more generous healthcare benefits for coal
miners stopped delaying action on the measure.

Reuters is the news and media division of Thomson Reuters. Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Learn more about Thomson Reuters products: